Mondelez to pay $13 million to settle India FCPA violation charges

"Mondelez International Inc. and Cadbury Limited are pleased to have reached an agreement with the SEC to settle charges related to internal controls and books-and-records provisions of the FCPA, without admitting or denying the charges.US markets regulator the Securities and Exchange Commission (SEC) has charged snack-maker Mondelez International, Inc. with poor internal controls and violation of the Foreign Corrupt Practices Act (FCPA) in India.

Mondelez has agreed to pay $13 million (approximately Rs 90 crore) in civil penalties without admitting or denying charges that its subsidiary Cadbury India (now Mondelez India Foods) paid a consultant who was suspected to have bribed government officials and possibly top state politicians to obtain licenses and approvals for a chocolate factory in Baddi, Himachal Pradesh.

"Mondelez International Inc. and Cadbury Limited are pleased to have reached an agreement with the SEC to settle charges related to internal controls and books-and-records provisions of the FCPA, without admitting or denying the charges. As part of the settlement, Mondelez International Inc. has agreed to pay a civil penalty of $13 million to resolve the investigation," a company spokesperson said in a statement to ET.

On December 8, 2015, with evidence sourced from Cadbury India's own investigations, internal emails and documents as well as interviews with former company officials, ET had told the story of how the company hired Deepak Chandel, a tiles and marble dealer, to liaison with the state. About a month later, the US government enlisted India’s Central Bureau of Investigation through a letter rogatory to help in the probe.

The issue relates to Cadbury India's largest manufacturing plant located in Baddi, Himachal Pradesh, which makes Bournvita, 5-Star bars and button-shaped Gems. According to the company's investigation, it sought to designate production lines of 5-Star and Gems as a separate unit (Unit II) to claim excise and income tax benefit of more than 60 million pounds (Rs 600 crore) over 10 years. It would have helped the company make an internal rate of return of 58.5%, documents show. It was suspected that the agent paid bribes to get the licences and approvals for the plant.

Rajan Nair, who headed the company's special security investigations group in 2010-11, had then told ET that Mondelez knew about irregular payments in India at least three months before the SEC and the Department of Justice began formal investigations in February 2011. External investigators engaged by Cadbury found that irregular payments appeared to tally with periods during which crucial approvals came through.

The SEC order of January 6 concurs with the findings but is silent on the last mile of payments. Its investigation found that in 2010 Cadbury India retained and made payments to an agent to interact with Indian government officials to obtain licenses and approvals for the Baddi factory. It said Cadbury India failed to conduct appropriate due diligence on, and monitor the activities of, the agent. From February 2010 to July 2010, the agent submitted five invoices to Cadbury India for preparing licence applications.

But it was actually Cadbury India employees at Baddi who prepared these applications. Cadbury India paid the agent a total of $90,666 (after withholding tax). After receiving each payment, the agent withdrew from its bank account most of the funds in cash. During this time period, Cadbury India obtained some of the licenses and approvals.

As of September 30, 2016, Indian tax authorities have demanded a total of Rs 820 crore in unpaid excise duties, penalty and interest, according to company filings with SEC.

"We continue to hold that the decision to claim excise tax benefit is valid and that our executives acted in good faith and within the law in the decision to claim excise benefit in respect of our plant in Baddi. The matter is currently in the legal domain and therefore it would be inappropriate for us to comment at this time," a Mondelez spokesperson wrote ET in an email.

The all-equity merger deal includes an exchange ratio of 4.39 HUL shares for each GSK Consumer India share, along with GSK entire operations of nutrition business and contract to distribute the latter's over-the-counter (OTC) and oral care brands such as Sensodyne, Eno and Crocin.